The following is summary information about the new Medicare Part D program and how it may affect employer sponsored prescription drug plans. If you would like assistance with this matter, please let us know.
Beginning November 15, 2005, Medicare beneficiaries can enroll in the new Medicare Part D program that provides prescription drug coverage through Medicare Advantage plans or prescription drug plans (PDPs). Generally, those individuals who do not enroll during their first open enrollment period will pay a late enrollment penalty of 1% per month if they go 63 days or more without creditable coverage (definition below) and subsequently decide to enroll in a Part D plan.
As an employer, this new program affects you if any employees or their spouses who participate in your health plan are also eligible for Medicare Part D.
Part D Eligible Individuals include:
- Retirees and their spouses age 65 or over
- Active employees and their spouses age 65 or over
- Disabled Active employees or disabled spouses of active employees on Medicare
- Active employees or spouses on Medicare due to end stage renal disease
Medicare Part D-eligible individuals who have creditable coverage through their employer may stay in that plan, not enroll in Medicare Part D, and still avoid late enrollment penalties. If the employer's health plan does not provide creditable coverage, then Medicare-eligible individuals would need to enroll in Medicare Part D to avoid the late enrollment penalties.
The Center for Medicare and Medicaid Services (CMS) says coverage will be deemed creditable if it:
- Is designed to pay, on average, at least 60% of participants' prescription drug expenses;
- Covers both brand and generic prescriptions;
- Provides reasonable access to retail providers and, optionally, to mail order coverage; and
- Has a maximum annual benefit for prescription drug coverage that is at least $25,000 (or has an actuarial expectation that it will pay at least $2,000 per Medicare-eligible individual in 2006).
If a participant has creditable coverage through the employer - and decides to remain in the employer's plan - the employer may be eligible for a subsidy. Plan sponsors who choose the federal subsidy option for January 1, 2006 are first required to prove that their plans are as good as or better than the Standard Part D benefit. This proof should be included in their application (including Actuarial Equivalence Attestation) to CMS. Please see Employer Subsidy section below for further detail.
CMS also recommends, but does not require, that notices are sent to clarify certain points, such as:
- an individual's right to get a notice of creditable coverage and an explanation of the options that are available to them (i.e., that they can choose to stay in their employer's drug plan or switch to a Part D plan when it becomes available).
- the consequences if an individual decides to switch coverage while the individual is in an integrated plan that covers other medical benefits as well as drugs.
- re-enrollment rights or restrictions under the employer's plan if the individual opts out and enrolls in a Part D plan.
At a minimum, the appropriate notice should be provided at the following times:
- prior to an individual's initial enrollment period for Medicare Part D;
- prior to the annual Medicare Part D enrollment period running November 15 through December 31 of each year;
- prior to the effective date of a Medicare beneficiary's coverage under the employer's health plan;
- whenever prescription drug coverage ends or changes so that it is no longer creditable or becomes creditable; and
- upon a Medicare beneficiary's request.
If notice is provided to all plan participants, CMS will consider the first two items in the list to be met. "Prior to" means the notice must have been provided within the past twelve months. Copies of the notices can be found at the CMS website:
Model Beneficiary Creditable Coverage Disclosure Notice (to be used prior to 11/15/05)
http://www.cms.hhs.gov/medicarereform/CredCov-BeneDsclsreNtc.pdf
Model Beneficiary Non-Creditable Coverage Disclosure Notice (to be used prior to 11/15/05)
http://www.cms.hhs.gov/medicarereform/Non-CredCov-BeneDsclsreNtc.pdf
Employer Subsidy
Employers and unions have a number of options under the Medicare Modernization Act (MMA). The retiree drug subsidy is one of the options designed to encourage employers and unions to continue providing high quality prescription drug coverage. This option is available to all employers and unions regardless of whether they pay taxes or are tax exempt. The tax-favored retiree subsidy is up to 28% of allowable retiree costs from $250 to $5,000 up to a maximum of $1,330 per Medicare-eligible retiree. There are 5 steps to obtain the subsidy. The first is to submit (electronically or otherwise) an application by September 30, 2005. The second is to attach to the application an actuary's attestation that the plan meets the MMA's actuarial equivalence standard. The third is to certify that the creditable coverage status of the plan has or will be disclosed to plan participants and CMS. The fourth is to electronically submit and periodically update enrollment information about retirees and dependents. The fifth is to electronically submit aggregate data about drug costs incurred and reconcile costs at year-end; submission of detailed individual claims data is not required (though claims records must be maintained for audits for six years). Details about the advantages of this approach and the necessary steps that need to be taken can be found at the CMS website:
The Retiree Drug Subsidy
http://www.cms.hhs.gov/medicarereform/pdbma/employer.asp
ACTION
Regardless of what the plan sponsor chooses to do, throughout September and October 2005, employers should send their Medicare-eligible employees (whether active or retiree) one of two notices regarding their coverage:
- Notice of Creditable Coverage: Their plan sponsor will continue to offer coverage as good as or better than Medicare Part D. Employees need to do nothing.
- Notice of Non-Creditable Coverage: The plan sponsor will not offer coverage as good as or better than Medicare Part D, and the individual should sign up for a Part D Prescription Drug Plan. Failure to enroll by the deadline will result in a premium penalty to the individual.